Companies hope for share of LNG investment boom

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China could see a surge in its use of liquefied natural gas, one that will require a massive investment in new terminals and gas-carrying ships to import the energy source.

Pointing to the growth of LNG, Chen Qiang, president of mainland shipbuilding group China Rongsheng Heavy Industries, said LNG contributed about 4 per cent of the mainland's energy resources. By comparison, coal accounts for 70 per cent of the total.

'In some developed countries, consumption of LNG made up 23 to 25 per cent of the total energy used, and in the United States consumption of LNG is even higher at 40 per cent,' Chen said. He added that current forecasts indicated the contribution of LNG would climb to 8 to 10 per cent of China's total energy needs by 2015 and surge to 20 per cent by 2020. Coal use will drop to 60 per cent, even though total energy consumption will be higher than now.

Specialist energy consultancy firm Wood Mackenzie said total gas demand from all sources including LNG would remain high, growing at a compound annual rate of 18 per cent to 284 billion cubic metres by 2017 from 136 billion cubic metres today.

However, 'delays in implementing structural gas price reforms in China have weakened buyers' appetite for more costly liquefied natural gas and might require China to seek alternative options for additional supply over the next two to four years,' said Wood Mackenzie in a research report released this month.

As a result, the firm revised its forecast demand for LNG in China to 31 million tonnes per year by 2015, down from 33 million tonnes.

Most of the LNG will come from the Middle East, Australia, Papua New Guinea or other Asian nations, with about 70 per cent imported by specialist LNG carrying ships.

Chen said research indicated between 80 and 100 gas carriers would be required over the next 10 years to transport LNG to China. So far there are only five 147,000 cubic-metre-capacity LNG carriers in service, transporting gas from Australia to terminals in Shenzhen and Fujian. All were built by Shanghai's Hudong-Zhonghua Shipbuilding.

But the National Development and Reform Commission has shortlisted China Rongsheng together with Hudong-Zhonghua and Dalian Shipbuilding Industry to tender for the massive LNG carrier building programme. No details have been released but the price of an LNG carrier varies between US$200 million to US$250 million, depending on specifications and cargo carrying capacity.

As a result, the expansion of China's gas carrier fleet is potentially worth a massive US$25 billion over the next decades.

'Bidding for the LNG carriers will start next year and deliveries will begin in 2015-16,' said Chen.

China has around 12 LNG terminals in operation, under construction or planned. Chief financial officer Sean Wang Shaojian said mainland governments were likely to build both large and smaller terminals.

China already has long-term contracts in place to import gas from Western Australia. Sinopec also inked a 20-year agreement in 2009 to import LNG from Papua New Guinea in a project being developed by a team led by ExxonMobil that should come on-stream in 2014.